Housing prices are likely to go lower

Bottom of market still year off, economists say

Despite four years of falling prices and recent signs that they were finally bottoming out, homes are expected to lose still more value in many metro areas over the next year.

Parts of the country already pummeled by the housing crisis, like Phoenix, Las Vegas and Miami, will be hit hardest. Even some places that have rebounded or held up relatively well - including New York, Los Angeles and Washington, D.C. - will suffer, too.

That's the conclusion of economists who have been reducing their estimates for home prices as the outlook for the economic recovery has darkened. The number of homes for sale or headed for foreclosure is so high that they think prices will be even lower by next July.

Because housing is such an important engine of the economy, lower prices could dim the recovery. When home values fall and people have less equity, they tend to cut back on spending. And as prices decline, potential homebuyers stay on the sidelines, slowing sales even more.

Although new-home sales jumped in June nearly 24 percent from a month earlier to an annual sales pace of 330,000, it was still the second-weakest month on record, the Commerce Department said Monday. More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble popped, sales plunged to 375,000 last year.

Earlier this year, analysts said they thought home prices had finally reached their low point and were ready to start rising slowly in most areas of the country. Now, they think the bottom could be nearly a year away.

The average home price in the Standard & Poor's Case-Shiller index of 20 big U.S. cities is forecast to drop nearly 2 percent this year from a year ago, according to the average estimate of more than 100 economists polled this month by MacroMarkets LLC.

That's more pessimistic than in May, when the consensus was for prices to be nearly flat. Analysts who are more bearish think prices will sink 10 percent or more.

Price drops of more than 10 percent are expected in the Phoenix, Miami and Las Vegas areas over the next year, according to Moody's Analytics. Those areas have already been scorched by 50 percent declines in home values.

Home prices in the Valley have dipped 4 percent in the past month. Until the recent decline, the region's home prices had been inching up since spring 2009.

Based on pending sales prices, Phoenix housing analyst Mike Orr has forecast that home prices will continue to fall in August.

Moody's predicts that other areas - New York, Los Angeles, San Diego, San Francisco, Denver, Detroit, Cleveland, Minneapolis, Tampa and Washington, D.C. - will see declines of 2 to 8 percent by next July.

Many analysts expect home prices to rise for a few months because a tax credit offered to homebuyers through April increased demand. But the gains probably won't last. By this time next year, Moody's expects prices in 17 of the 20 cities to have fallen.

Why further price drops for already hard-hit areas, as well as in healthier markets like New York and Los Angeles?

There already is a glut of homes left in each area by the real-estate bust, and more foreclosures are expected as Americans fall behind on mortgage payments. Foreclosures add to the supply of homes for sale, bringing down prices.

In Miami, nearly a quarter of mortgage borrowers have missed at least three months of mortgage payments or are already in foreclosure, according to Moody's. That's the highest level in the country.

On top of that, so-called short sales, which happen when lenders let homeowners sell their houses for less than what they owe on their mortgages, are rising. They can drive down the value of neighboring homes, too.

Short sales account for about 28 percent of all Phoenix home sales now, compared with 21 percent in June. In Sacramento, short sales made up about 26 percent of homes sold in June, up from about 17 percent a year earlier.

Contributing to the problem is an economy grappling with high unemployment, relatively flat pay and tightened credit, all working to limit the number of people buying homes.

It could be a decade before the average price nationally reaches the peak it hit four summers ago, said Celia Chen, chief housing economist at Moody's. Even when they do resume rising, prices may not outpace inflation.

The median price peaked at $230,300 in July 2006 before tumbling 28 percent to a low of $164,700 in January 2009, according to the National Association of Realtors. The median has since risen to $183,700.

Nationally, about 7.1 million homeowners - more than 13 percent of households with a mortgage - have either missed at least one payment or are in foreclosure, according to data provider Lender Processing Services Inc.